District Court Judge Rules CFPB is Unconstitutionally Structured

In the final few pages of a 108 page opinion of a motion to dismiss a complaint jointly filed by the Consumer Financial Protection Bureau (CFPB) and the Attorney General of the State of New York (NYAG), a Federal Judge sitting in the Southern District of New York declined to follow an earlier ruling from the Court of Appeals for the District of Columbia Circuit but instead adopted the dissent which held that “the CFPB is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single Director.”

Judge Loretta Preska acknowledged the existence of the en banc opinion of PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018), which previously upheld the constitutionality of the CFPB but further noted that the decision was not binding on her in the Southern District of New York. Rather, she adopted Sections I-IV of Judge Brett Kavanaugh’s dissent with regard to the claims of unconstitutionality.

However, where Judge Kavanaugh’s dissent provided a remedy to “invalidate and sever the for-cause removal provision and hold that the Director of the CFPB may be supervised, directed, and removed at will by the President,” Judge Preska departed and instead agreed with another dissent from the PHH case (Judge Karen LeCraft Henderson), which found that “the presumption of severability is rebutted here. A severability clause does not give the court power to amend a statute. Nor is it a license to cut out the heart of a statute. Because [the clause] is at the heart of Title X (Dodd Frank), I would strike Title X in its entirety.”

She also rejected the CFPB’s attempt to ratify the suit after the fact, as the ratification does not cure the underlying constitutional deficiencies. Because the CFPB “lacks authority to bring this enforcement action because its composition violates the Constitution’s separation of powers,” the CFPB’s claims were dismissed.

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Tom Dominczyk is based in Maurice Wutscher's New Jersey office and supports the firm's matters in its New York and Pennsylvania offices, practicing in the firm's Commercial Litigation, Consumer Credit Litigation and Bankruptcy groups. Tom has successfully represented financial institutions and law firms throughout the country for claims filed under the Fair Debt Collection Practices Act, Fair Credit Reporting Act and various state consumer protection statutes. In addition to his litigation practice, Tom represents national, regional and local creditors in a variety of bankruptcy matters ranging from the defense of adversary actions to complex non-dischargeability litigation and preference defenses. He served as a Judicial Clerk to the Honorable Graham T. Ross, P.J.F.P., Superior Court of New Jersey, Somerset County.